<2.8 PES>

--PES: DEFINITION--

PRICE ELASTICITY OF SUPPLY (PES) is a measure of THE RESPONSIVENESS of the QUANTITY of a GOOD SUPPLIED to CHANGES in PRICE.

--PES: FORMULA--

--PES: EXAMPLE CALCULATION--

--PES: VALUES & DIAGRAMS--

Rules:

if the supply curve comes from the origin

--DETERMINANTS OF PES--

MORE INELASTIC

MORE ELASTIC

--SHORT TERM--

OVER A SHORT TIME PERIOD, a firm may be UNABLE TO INCREASE/DECREASE ANY OF ITS INPUTS TO CHANGE THE QUANTITY IT PRODUCES. In this case, SUPPLY IS HIGHLY INELASTIC, and may even be perfectly inelastic.
Therefore, THE SHORTER THE TIME PERIOD a firm has to adjust its inputs, THE SMALLER the PES.

--LONG TERM--

OVER A LONGER TIME PERIOD, a firm may be MORE ABLE TO INCREASE/DECREASE ITS INPUTS TO CHANGE THE QUANTITY IT PRODUCES. In this case, SUPPLY IS HIGHLY ELASTIC.
Therefore, THE LONGER THE TIME PERIOD a firm has to adjust its inputs, THE LARGER the PES.

WHAT FACTORS MAKE THE 'TIME TO INCREASE OUTPUT' SLOW?

WHAT FACTORS MAKE THE 'TIME TO INCREASE OUTPUT' QUICK?

--IMMOBILE FOPs--

If a firm CAN'T EASILY SHIFT ITS EXISTING RESOURCES out of one line of production and into another (where prices are increasing), then the LOWER the responsiveness of quantity supplied to changes in price, and hence the LOWER the PES.

If the price of sushi rose, a clothes-making firm would not be able to shift its workers and machinery over to start making sushi, without a lot of extra training and investment.

--MOBILE FOPs--

If a firm CAN EASILY SHIFT ITS EXISTING RESOURCES out of one line of production and into another (where prices are increasing), then the GREATER the responsiveness of quantity supplied to changes in price, and hence the HIGHER the PES.

If the price of apples rose, an orange processing firm would be able to shift its workers and machinery over to start processing oranges, relatively quickly and easily.

--UNAVAILABLE FOPs--

If a firm CAN'T EASILY FIND ADDITIONAL PRODUCTIVE RESOURCES to increase output, then the LOWER the responsiveness of quantity supplied to changes in price, and hence the LOWER the PES.

If private medical prices rise it will not be easy to find available and qualified medical staff quickly, hence the PES will be INELASTIC.

--AVAILABLE OF FOPs--

If a firm CAN EASILY FIND ADDITIONAL PRODUCTIVE RESOURCES to increase output, then the GREATER the responsiveness of quantity supplied to changes in price, and hence the HIGHER the PES.

If fast food prices rise it will be relatively easy to find available and qualified staff quickly, hence the PES will be more ELASTIC.

--FULL CAPACITY--

If the firm’s CAPACITY IS FULLY UTILISED, it will be more difficult to respond to a price rise. therefore, the less the spare capacity, the smaller the PES (the more inelastic the supply).

--SPARE CAPACITY--

If a firm HAS SPARE CAPACITY to produce that is not being used, it is relatively easy for a firm to respond with increased output to a price rise. Therefore, The greater the spare (unused) capacity, the higher is PES (the more elastic the supply)

--INABILITY TO STORE--

If a firm's product is PERISHABLE and/or they have NO STOCKS then they are not able to 'draw on' any inventory in response to any price rises. Therefore as the responsiveness is LOW so too s the PES (INELASTIC)

--ABILITY TO STORE--

If a firm's product is NOT-PERISHABLE and they have BUILT-UP STOCKS then they are able to IMMEDIATELY 'draw on' any inventory in response to any price rises. Therefore as the responsiveness is HIGH so too s the PES (ELASTIC)

--PADLET TASK--

With reference to the information above, create two padlet posts, containing a picture of a good or service that is price elastic and one that is price inelastic, with a brief explanation below explaining your rationale.
Place your IMAGES HERE

--P1 PAST PAPERS--

--P2 PAST PAPERS--

2-MARKERS

4-MARKERS

6-MARKERS

Analyze the factors that may make the supplier of a product more price elastic. 6